Many have advocated for changes in New Mexico tax and business regulation policies, including Rep. Jason Harper, Paul Gessing, Rio Grande Foundation CEO and and Carla Sonntag, New Mexico Business Coalition CEO. They’ve coined phrases such as the “doughnut hole” and “Island of Poverty” because of New Mexico’s rankings compared to neighboring states which are flourishing economically. New Mexico is consistently ranked lowest in education, very low in economic growth, almost last in opportunity and near the top in violent crime. These are certainly not the rankings that attract new business or help small business grow.
Three of our neighboring states Utah, Arizona and Colorado are the top five in growth ratings per a US News Report, New Mexico is 32. Growth measures the economic future of a state, and can be a strong indicator of up-and-coming locations for businesses and entrepreneurs – as well as areas that may struggle in coming years. Under current policy New Mexico is poised to struggle.
New Mexico is the “doughnut hole” because: work force training doesn’t match potential opportunities for growth; a mass migration of our youth and talent to better jobs in neighboring states, high unemployment and low labor participation, business unfriendly taxes and regulations that cause New Mexico to be uncompetitive, and a legislative attitude of “wealth redistribution” rather than economic growth that would create opportunities for all New Mexicans.
Young people drive the economy forward, creating a symbiotic relationship between a state's economic growth and innovativeness and its ability to attract and retain members of younger generations. Utah, Arizona and Colorado rank in the top five in growth of young population, Texas is 13, and New Mexico is 37.
New Mexico has many positive attributes, but until we address the myriad anti-business issues, few in New Mexicans will benefit from them.
New Mexico’s ranking in job growth is 20. All the neighboring states rank between 1 and 10. Per the 2020 Census, Utah grew at 18.4 percent and Texas grew by 15.9% while New Mexico only grew by 2.8%. New Mexico’s population is aging because we are educating our youth to take jobs in neighboring states. So, what’s the problem in New Mexico? It certainly isn’t natural amenities or the weather.
New Mexico remains an “island of poverty” because bad public policy holds it back and it isn’t going to arise from the ”doughnut hole” condition until we become competitive in taxes and regulations.
Our Gross Receipts Tax (GRT) is one of the problems. GRT is levied against the receipts of a sale that results in a change of ownership, these are turnover taxes not based on profits or measures of income. As the taxes are added to the stages of production, they “pyramid” into the final price so that the real tax rate for small business can be as much as three times higher than the published state rate. This pyramiding causes New Mexico to be uncompetitive. Many businesses will relocate out of New Mexico to more business-friendly states and others will be deterred from coming here.
New firms contribute disproportionately to both gross and net job creation, play a major role in business cycles and account for an outsized share of the innovation and aggregate productivity growth that raises living standards. Young firms are important for aggregate job and productivity growth; the decline in entrepreneurship is associated with a decline in productivity growth (Alon et al. 2017; Decker et al. 2017) as well as a decline in the job reallocation and labor market fluidity that is important for wage growth (Hyatt & Spletzer 2016).
Tax rates have an economically significant negative effect on employment among start-up firms. Specifically, for everyone percentage point increase in the tax rate, employment in start-up firms declines 3.7%. (Professor E. Mark Curtis of Wake Forest University and Ryan A. Decker for the Federal Reserve.).
When New Mexico tax rates, tax structures and business regulations are uncompetitive with neighboring states, the result is consistent with New Mexico’s poor rankings and being the “doughnut hole.” If New Mexico is going to be competitive with our economically flourishing neighboring states, we must see significant changes in public policy.
Dave Heil is the Sandoval County Commission Chairman, Past Chair Rio Rancho Planning and Zoning, Business leader and Real Estate Investor for over 40 years.